MU Talks Reveal Uncertainties In Controlling Carbon Emissions By Cap-And-Trade Legislation

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COLUMBIA, Mo. – “Uncertainty” was the word used most often in talks at the Breimyer Seminar on “Greenhouse Gas Regulations” at the University of Missouri Reynolds Alumni Center.

Ray Massey, MU Extension economist, said capture and sequestering of carbon could provide farmers with added revenue. Or it could complicate and change farming practices. Both potentials now exist, he told an audience interested in agricultural policy and legislation affecting farming.

Seth Meyer, analyst with the MU Food and Agricultural Policy Research Institute, used the newly updated FAPRI biofuels addition to its model for projecting the annual agricultural baseline.

Uncertainty about the renewal of tax credits for blenders of biodiesel adds volatility to biofuel markets, Meyer said. Blenders, who mix biofuels with petroleum products going to the fuel pumps, now receive a 45 cents per gallon credit on ethanol. A $1 per gallon tax credit for mixing biodiesel to petroleum diesel expired last Dec. 31. The credit for ethanol is set to expire in December of this year.

Pat Westhoff, co-director of MU FAPRI, reported on progress in passing a climate change bill, popularly known as cap-and-trade. Before going to the podium, he checked his cell phone for the latest news, as plans for Senate debate were changing as he spoke.

A version of the climate bill passed the House earlier. The Senate is considering a variation filed by Sens. John Kerry and Joe Lieberman.

Both bills would increase energy costs to farmers. But both would also allow farmers to earn money if they change farming practices to reduce greenhouse gas emissions or sequester carbon in the soil, Westhoff said.

For example, costs of natural gas could go up as much as 40 percent, which would raise the cost of fertilizer. “This introduces uncertainties for corn farmers,” Westhoff said.

Likewise, uncertainty exists on potential incentives for planting trees that could draw crop acres into forestry. One estimate is for 59 million added acres of planted trees by 2050.

“Other estimates foresee a much smaller shift that would have almost no effect on crop production,” Westhoff said. “At this point, any estimates you see are based on layers of assumptions that may or may not be right.”

Most important is the volatility in cost of gasoline and diesel. “The higher the fuel price, the more valuable biofuel becomes,” Westhoff said.

Meyer pointed out that a Congressional vote on tax credits and tariffs—either for or against—would clarify the market and help stabilize biofuel production. “With or without tax credits, biofuels will be produced as long as firm legislative mandates for use remain in place.”

What is being debated is policy on who should pay. “With tax credits, the taxpayer subsidizes the price. Without tax credits, the price will be paid at the fuel pump by the consumer.”

As the legislative debate evolves, Congress calls on MU FAPRI for analyses using the newly updated biofuels model, Westhoff said. “We are looking at different scenarios in the biofuel area. All look at costs and acreage shifts.”

David Miller, an economist with the Iowa Farm Bureau, told of three years of experience in trading credits for carbon sequestering. Farmers are paid for carbon returned to the soil from offsets purchased by industries emitting large volumes of carbon.

Some 40,000 producers have participated in contracts sequestering carbon. Most rely on use of no-till farming, but some farmers plant trees for a longer-term benefit.

A major obstacle to sign-up for contracts is the length of commitments, Miller said. Some environmentalists want 100-year contracts with 100-year extensions.

The average age of tree farmers is 68, Miller said. “They are not interested in 100-year contracts, not even a 15-year contract.”

“We’ve learned a lot,” Miller said. “But we’ve not made any money.” Because of the low price placed on carbon credits now, the Iowa carbon credit aggregator stopped signing new contracts last year.

“This is a case where it didn’t pay to be the first to try something new,” Miller said.

James Andrew of the Iowa Soybean Association told of his experience as a former member of a farm-oriented advisory group for the Environmental Protection Agency. “As a farmer, I like to get things done. The EPA staff in Washington does not feel that same urgency,” he said. “Sometimes I feel they are waiting for us (farmers) to go away.”

Westhoff said there is no certainty of climate legislation at all. First, the Senate must get 60 votes to overcome a potential filibuster. Then the House and Senate bills must be reconciled in committee.

Adding to uncertainty is a plan by the EPA to enact carbon regulations even if no climate bill passes in Congress. Westhoff added that Congress could pass legislation limiting EPA authority to regulate greenhouse gases.

Many farmers, facing uncertainty on planting their soybean crop this year, stayed home from the seminar on climate change options, waiting for a dry spell.

Source: Pat Westhoff and Seth Meyer, University of Missouri Extension


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